Behind Comcast's Gold Rush

After losses in Vancouver and more to comein London, Comcast chairman and CEO Brian Roberts insistedthat last week’s $4.4 billion Olympic Games bid by itsNBCUniversal unit will make money.

But according to some people who follow the media giantclosely, the path to profitability will depend heavily on higherfees and ad sales, which could be harder to find as the gamescachet dwindles and the global economy finds its footing.

NBCU (a Comcast-controlled joint venture with GeneralElectric) bested bids from Fox Sports and ESPN to win therights to air the 2012, 2014, 2018 and 2020 Olympic Games. Thewin solidifies NBC as the Olympics Network — it has aired everyWinter and Summer Olympics since 2000.

But by outbidding the competition by such a large margin— Fox reportedly bid $3.4 billion for four games and $1.5 billionfor two, while ESPN/ABC bid $1.4 billion for two — NBCruns the risk of paying too much for what has become aprogramming loss leader. NBC said it lost about $223 millionon the 2010 Vancouver Winter Games and that it expectsto lose another $250 million at the 2012 SummerGames in London.

“We were blown away by the [NBCU] presentation andthe passion this team has for the games,” InternationalOlympic Committee member Richard Carrion said, accordingto published reports. “I’d be less than honest if Isaid the number didn’t come into play.”

Roberts said that the NBCU bid was “disciplined andresponsible.”

“We think this will be a profitable relationship for NBCUniversal,” Roberts continued. “Having eight more years,we will have an opportunity to build up a lot of the assetsat NBC Universal … It was unanimous among our teamthat having [the games] for the longer term will help usachieve that goal.”

But at least one analyst doesn’t expect the media giantto turn a profit on the games until at least 2018, and thatwill be determined mainly by where they are held. TheIOC selected Sochi, Russia, for the 2014 Winter Gamesand Rio de Janeiro, Brazil, for the 2016 Summer Games.Sites for the 2018 and 2020 Games have not yet been determined.

Wunderlich Securities media analyst Matt Harrigan estimatedthat NBCU would lose about $65 million on theSochi Games and would break even in Rio.

That is substantially less than the losses sustained inVancouver and London, but is mainly due to the lower feepaid for some contests. According to Carrion, NBCU willpay $775 million for the Sochi games (it paid $820 millionfor Vancouver) and $1.23 billion for Rio (it paid $1.18 billionfor London). As for the Winter Games in 2018, the IOCcommanded $963 million, while the 2020 Games garnerednearly $1.42 billion.

On the one hand, Harrigan said, it looks like the costs of thegames can be spread across several networks, which will attracthigher carriage and advertising fees. But the differencebetween the Fox and NBCU bids — about $800 million — suggestthat the Olympics may not have the cachet they once had.

“On the surface it is not an atrocious deal,” Harrigan said.“But just playing devil’s advocate, Fox being $800 million behindin covering the bid is a little worrisome.”

Other analysts tread lightly in analyzing the deal. MorganStanley media analyst Ben Swinburne said that by bidding$4.4 billion for four Olympics, NBCU’s costs are basicallyflat considering the $2.2 billion it paid for two Games — 2010and 2012. He estimated that with a modest rise in advertisingrates and flat ratings NBCU could cut the losses per Olympicsin half in 2014-2020 versus 2010-2012. And he said higher affiliate and retransmission consent fees could push the gamesinto the black.

The so-called Olympic surcharge was imposed duringthe last round of the Olympics by NBCU, then under GE’sownership. Sources indicate that NBCU has already obtainedsurcharges from a number of MSOs for some of thegames under the new deal. NBCU is also receiving contributionsfrom broadcast-network affiliates to support theOlympics bid.

Insight Communications CEO Michael Willner said hedoes not recall any recent conversations with NBCU regardingan Olympics surcharge, but he would have littleobjection to paying the amount he has paid in thepast. If that fee were to rise, however, then it couldbecome a problem.

“If they ask for more money, then they are contributingto the problem of spiraling sports costs,”Willner said. “That is not a good thing.”

Aside from the possibility of higher fees, Robertsand new NBC Sports Group chairman MarkLazarus spoke to NBCUniversal’s array of assets,platforms and promotional capabilities as keycomponents for its games gambit.

Lazarus said the rights deal encompasses “TV,tablets, mobile broadband,” before adding thatit covers all platforms “now known, to be knownand those still to be conceived.”

With those vehicles in place he said there wouldbe more Olympics coverage on more platformsthan ever before. “It’s all encompassing. That’spart of the value of our new company ... one of thegreat joys of this deal.”

And starting in 2014, each event will be availablelive on one platform. It was unclear what thatmight mean for London, the broadcast plans forwhich are already in place, according to Lazarus.However, he did say there would be more livestreaming in real-time from next summer’s competition.

WINNERS

Comcast CEO Brian Roberts/NBCUCEO Steve Burke — The leadersput their imprimaturs on theirnew company, gaining longtermOlympic gold via lots ofgreen. Now, if only NBC couldplace in the ratings in primetime.Meantime, the cache of theGames will spread throughout theprogrammer.

NBC Sports Group chairman MarkLazarus — In his first major rightsgambit, the cable veteran cameup huge, picking up a quartet ofGames that would have madehis predecessor proud. Witha commitment to new mediaand devices that have yet to beconceived, Lazarus will usher theOlympics presentation into the21st century.

Gary Zenkel President, NBC Olympics,Executive Vice President, StrategicPartnerships NBC Sports — NBC’sbusiness torch bearer and allthose of working on the Gamespresumably now have gigs forthe remainder of the decade.Will Zenkel and crew integrateNBC’s history of packaging dramain primetime with a new liveapproach to the games?

International Olympics Committee —Despite the NBC’s $223 millionloss in Vancouver and projectionscalling for $250 million in red inkfrom London, the Games keepersreceived another huge check fromtheir American benefactors — U.S.TV rights account more than halfof the TV revenue the organizationreceives and one-third of its totalrevenue from 2005-08.

U.S. Olympic Fans/Viewers — Saygoodbye to tape delays. Underthe new deal, NBCU says allevents will be live on TV or otherplatforms.